MacroEconomics

Ummad Mazhar, PhD

1
Session 7: Roadmap

• What is unemployment?
• What are the causes of unemployment?

2
• • An unsold good is a nuisance. An unemployed worker is a
tragedy. [Paul Krugman]

3
• Technically, an unemployed is one who is “jobless, looking for
jobs, and is available for work”
• In national income accounts, a worker is counted as
unemployed if s/he is satisfying the three conditions
• 1: Jobless
• 2: Looking for work
• 3: Available for work

4
 Unemployment defined
If Jobless Searching for work Available for work Category

Yes Yes No Disable; not available for

a time due to illness etc.
Yes No Yes Discouraged workers;
retirees
No Yes Yes Part-time; informal

Yes Yes Yes Unemployed

5
Population categorized

6
Measuring unemployment
• Unemployment is excess supply of labor
• The first step in measuring unemployment is to count workers
or measure the size of labor force
• Generally, labor force include all adult population i.e. 16 or
older. (In Pakistan it is 15+ to 65 years age group)

7
• Labor Force = Employed + Unemployed
• Supply = Demand + Excess

• In Pakistan Labor force is called currently active population

• The working age population in Pakistan is from 10 years and
above

8
 Three Labor Market Indicators
• Unemployment rate is the percentage of the labor force that is
unemployed
• 1.Unemployment rate U = = U in %
• All adults are not part of job market. We need to focus on
labor force participants
• 2. Labor force participation rate =
• 3. Employment to population ratio

9
Other names
• Labor force participation rate = Refined activity rate

• Labor force to population ratio = Crude activity rate

10
Indicators interpreted

• Unemployment rate is an indicator of the lack of demand for

workers

• The employment to population ratio is an indicator of the

availability of jobs and the degree of match between jobs and
skills

• Labor force participation rate is an indicator of the willingness of

people of working age to take jobs
11
Demographic features and unemployment

• Rate of unemployment differ across ages

• Unemployment is highest among youth and old i.e.

• Those falling in 16 to 25 years and in 60+ years of age

• For example in European countries like Spain, Italy, and

Greece the youth unemployment is around 20 to 40 percent

12
• A more youthful population means
• Less labor supply
• Greater part-time labor supply
• Greater inflow of workers in coming years

• Median age in Pakistan is less than 23 years second lowest in this

region after Afghanistan's 17 years

• Unemployment is (relatively) low in Pakistan because of low youth

participation rate. Youth participation is low due to cultural factors and
institutions like family
13
Measuring unemployment in Pakistan
• Unemployment in Pakistan comprises all persons ten years of age and
above who during the reference period were:
• i) “Without work” i.e. were not in paid-employment or self-
employment; and
• (ii) “Currently available for work” i.e. were available for paid
employment or self-employment: or
• iii) Not currently available for the following reasons: illness, will take a
job within a month, is temporarily laid off, is an apprentice and is not
willing to work:
• or iv) Seeking work during last week.

14
See you next time

15